A federal district court has dismissed a suit brought by two wage earners who sought to block the IRS from issuing “lock-in letters” that raise the amount of tax withheld from their paychecks, finding the action barred by the Anti-Injunction Act and the Declaratory Judgment Act. (Lobdell v. United States, 2026 WL 2741865, 9/16/2026)
What are IRS ‘lock-in’ letters?
Under IRC § 3402(a), every employer that pays wages must deduct and withhold income tax from those wages. Employees ordinarily use Form W-4, Employee’s Withholding Certificate, to claim their withholding allowances. The IRS can step in, however, when it concludes that an employee has claimed too many exemptions.
In that situation, under Reg. § 31.3402(f)(2)-1(g), the IRS can send a “lock-in letter” to the employer that overrides the worker’s Form W-4 and sets the withholding rate. The regulation allows such letters when a certificate is materially incorrect or when the IRS otherwise determines the employee is not entitled to the exemptions claimed.
The two employees here received letters in November 2024 directing their employers to withhold at the maximum “Single 0-0” rate, which raised withholding by roughly $1,100 per paycheck for one and $950 for the other. They say they objected by mail and phone, but their withholding status was not reconsidered. They sued to set aside the regulation, arguing it violates the Administrative Procedure Act, exceeds statutory authority, and denies due process under the Fifth Amendment.
Anti-Injunction Act bars the suit
The U.S. District Court for the Northern District of Texas granted the government’s motion to dismiss for lack of jurisdiction. The court relied on the Anti-Injunction Act (AIA), IRC § 7421(a), which provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.”
Judge Mark T. Pittman reasoned that lock-in letters are a core part of tax collection. The withholding statute directs employers to deduct and withhold “a tax,” and, citing the U.S. Supreme Court’s per curiam decision in United States v. American Friends Service Committee, 419 U.S. 7 (1974), Judge Pittman noted that “withholding is a method of collection of taxes within the meaning of § 7421(a).”
Because the employees’ suit sought to stop that withholding, the court concluded the action was one to restrain collection and therefore barred by the AIA. The bar reaches every count, including the constitutional claims, the court added, because the AIA turns on the relief sought, not the legal theory pressed.
‘CIC Services’ does not apply
The employees argued their case could proceed under the Supreme Court’s decision in CIC Services LLC v. IRS, 593 U.S. 209 (2021), which allowed a pre-enforcement challenge to an IRS reporting notice even though noncompliance carried a tax penalty. Judge Pittman distinguished that decision on the three grounds the Supreme Court had identified.
First, the notice imposed reporting duties with compliance costs separate from any tax, while lock-in letters directly compel the withholding of tax. Second, the reporting requirement was “several steps removed” from tax liability, whereas lock-in letters directly adjust collection. Third, the notice was backed by separate criminal penalties, whereas the letters carry no such distinct criminal exposure; the court found the employees’ citation to IRC § 7205, on fraudulent withholding certificates, did not supply that element.
The court also rejected the employees’ reliance on language in the letters stating that they make no determination of “ultimate” tax liability. Read in context, the court said that phrasing is consistent with the withholding mechanism, under which an initial assessment may differ from the final liability, and it places the dispute squarely within the pay-first, sue-later structure.
Taxpayers’ remedy is a refund suit
The court concluded that the employees are not without recourse. The established path, the court explained, requires a taxpayer to pay the tax, exhaust the IRS’s internal refund procedures, and then sue for a refund, citing Bob Jones University v. Simon, 416 U.S. 725 (1974). Withheld tax is credited against the employee’s income tax liability under IRC § 31(a), and any overpayment must be refunded under IRC § 6402(a).
A claimant whose refund is denied can then sue in federal court and press the same challenges to the regulation raised here. The court also turned aside two judicially created exceptions, finding South Carolina v. Regan, 465 U.S. 367 (1984), inapplicable because the employees have that alternative remedy, and Enochs v. Williams Packing & Navigation Co. , 370 U.S. 1 (1962), unavailable because the government’s position was tenable and an adequate legal remedy existed.
The court held that the Declaratory Judgment Act independently bars the suit, describing the Act’s tax exception as at least as broad as the AIA. With neither statute waiving the government’s sovereign immunity, the court dismissed the claims without prejudice, leaving the employees free to raise their challenges in the appropriate posture.
For more on the IRS’ issuance of lock-in letters, see Checkpoint’s Federal Tax Coordinator 2d ¶ H-4522.
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